California’s Unemployment Insurance Trust Fund continues for the fifth straight year to be in debt to the Federal Unemployment Trust Account (FUTA). With an outstanding debt of $8.7 billion at the end of 2014, California maintains the largest debt of the 10 states still in debt to the federal fund. By the end of 2015, California’s negative balance is projected to decrease to $7.4 billion, if changes are not made to the financing structure of the state’s UI system. Furthermore, benefit, eligibility and integrity structures are in need of comprehensive updating and streamlining in order to maintain the health of the fund into the future and withstand the next recession.
Because California remains in debt to the federal unemployment insurance (UI) fund, California employers are paying a higher federal UI tax (FUTA) to pay off the debt. Each year that a balance is owed to the federal fund, California employers pay a higher tax and the state must pay interest on the outstanding debt—by the end of 2014 the state will have paid over a billion dollars in interest to the federal trust fund. Unemployment Insurance
The CalChamber believes that the state must be diligent in its policy making to improve the business climate in California and strive to combat rising unemployment, which results in a more stable UI Trust Fund.
The UI system cannot be viewed in isolation from the overall business climate in the state and in surrounding states that compete for our businesses. The state needs a sustainable UI system that protects both workers who are temporarily unemployed through no fault of their own, and employers who spur investments and job creation.
Any solution to resolve the ongoing deficit and to return the fund to stability must include significant changes to improve system integrity, including fraud and overpayments, and to appropriately align eligibility determinations. Both tax and benefit levels must be consistent with other states so that California remains competitive to attract and retain businesses.
- Stopped an unemployment insurance tax increase that would have created a disincentive to hire new employees by tripling the already-high unemployment insurance taxes on California employers without a proper analysis of what is needed to reform California’s broken unemployment insurance system (SB 222 of 2009).
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